This year's Chinese New Year has ushered in a season markedly different from years past, characterized by the emergence of DeepSeek, an AI technology that is reshaping the landscape of technological advancements in ChinaFollowing the holiday, the Chinese stock markets have witnessed a sharp rise, driven by the concept of AI powering an awakening in market sentimentDeepSeek's unyielding upward momentum has reignited hope among investors who have long criticized the A-share market as fragile and prone to decline, often likening it to a "soft bone disease."

To grasp the implications of this technological breakthrough, one must understand the context in which it unfoldsWith the U.Sand China entering a new era of competition, DeepSeek has been hailed by experts, including Feng Ji, the founder of Game Science, as a technology of national significance, likening its impact to the ripple effects of a butterfly flapping its wings

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The stock market's response offers a glimpse into the potent effects of DeepSeek's advancements on investor confidence and overall market dynamics.

The emergence of DeepSeek has not only revitalized the tech segments of both the A-share and Hong Kong stock markets but also sparked reevaluation throughout the tech industryIts breakthrough has opened new possibilities, particularly in addressing the cost challenges faced by AI applications in commercial scenariosThere is a growing consensus that should DeepSeek's technological strategies prove viable, the costs associated with deploying AI — both in terms of development and operational application — would plummetThis could spell disaster for paid AI services, reminiscent of the early days of antivirus software where the rise of free options swamped the paid marketFurthermore, the rising tide of open-source AI frameworks has paved the way for a new era where businesses can integrate AI capabilities more affordably, hence enabling the development of various low-cost applications.

The spread of open-source AI models signifies a transformative wave that can be seamlessly integrated into existing business ecosystems — spanning sectors such as office automation, gaming, tourism, and retail

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Rather than relying on direct fees from AI models, this approach focuses on enhancing the primary service's penetration and pricing strategies, offering a lucrative potential for internet platforms boasting vast user basesFor example, by leveraging AI to improve product recommendations, shopping platforms could potentially boost both purchasing frequency and average transaction values.

Given this landscape, initial pessimism regarding reaching a saturation point in internet platform businesses now appears overly cautiousThe evolution of AI technology has presented unprecedented opportunities for business restructuring and profit enhancement, underpinning the remarkable performance of Chinese concept stocks abroad during the festive season.

Before the meteoric rise of DeepSeek, international capital displayed a tempered, if not dismissive, attitude toward China's AI advancements

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However, the advent of DeepSeek has dramatically shifted this perspectiveIts low-cost innovation and capability for high performance reengage foreign investors and shift the global tech stock narrativeFor instance, Nvidia, the GIANT benefactor of the AI wave, has recently adjusted its shipment forecasts for the GB200 chip for 2025 downward, guided by the surge in emerging AI technologies like DeepSeek, alongside a heightened expectation of more cost-efficient, effective models.

If the rigid “tech bubble” of American stocks has begun to crack under pressure, the ceiling for Chinese tech stocks might be on the cusp of shatteringUnlike past popular sectors such as new energy stocks, the AI and humanoid robotics industries enjoy less dependency on government subsidies; their growth is principally driven by technological progress and market demand, indicating immense potential going forward.

This enthusiasm, however, does not exist in a vacuum

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Post-DeepSeek's rise, some argue that such a breakthrough necessitates a comprehensive reevaluation of all Chinese assetsDeutsche Bank articulated that China's manufacturing and service sectors are at the forefront globally, and the launch of DeepSeek resembles a “Sputnik moment,” predicting that the discount on Chinese stock valuations would eventually dissipate, boosted by policy support for consumer spending and financial liberalization.

Despite the market momentum generated by DeepSeek, we must not overlook the fundamental issues afflicting A-sharesThe dominance of retail investors, a heavy reliance on policy interventions, and a propensity for speculative trades overshadow genuine investment functionalitiesSuch systemic problems cannot be remedied by the breakthrough of a single entity or sectorThe sentiment among retail investors further complicates this dynamic, as they often find themselves navigating a landscape riddled with traps laid by institutional players.

DeepSeek's rapid influence raises concerns about the potential implications of U.S.-China technological decoupling and escalating geopolitical tensions, which may restrict its globalization prospects and counterbalance the positivity stemming from its success

Should the market become enamored solely with concept speculation overlooking actual profitability, it could exacerbate existing bubbles and undermine market stability.

Ideally, if DeepSeek's breakthroughs stimulate momentum for reforms within domestic capital markets, advantageous developments could include the refinement of registration systems, an optimized delisting process, and attracting long-term investmentsSuch initiatives may promote a robust integration between tech enterprises and capital markets, akin to the expansion of the Science and Technology Innovation BoardRecent indicators suggest that with policy combinations fueling trading activity, the market has seen unprecedented levels of trading volume, with the number of stock repurchases soaring to new heightsInitiatives targeting mutual fund reforms and personal retirement savings could drive additional capital influx into markets.

Equally important is the cultivation of a multifaceted breakthrough narrative involving a constellation of “DeepSeek-like” companies — similar to the rise of innovative firms such as Huawei and DJI, together advancing the technological ecosystem

As the global competition in tech innovation intensifies, we can anticipate further “Sputnik moments” to catalyze progress across a range of sectors.

In the case of the A-share market, though DeepSeek may represent a flicker of hope igniting a wider blaze of progress, the necessary winds for broader change and resilience require diligence and patience.

The discussion surrounding the so-called “soft bone disease” of the A-share market inevitably intersects with the challenges posed by quantitative investment strategiesAssociated closely with DeepSeek is the specter of quant trading, as it is birthed from one of China’s leading quantitative private equity firms, reflecting a critical move in AI's operational landscapeSome investors have cast a discerning eye on its presence, alleging it could exacerbate market volatility and contribute to speculative excesses.

In practice, quant firms employ algorithms and high-frequency trading methods capable of executing trades in milliseconds, creating an environment where retail investors lag significantly in terms of access to information and analysis speed

Certain quant strategies tend to amplify short-term fluctuations — an instance being programmed trading that automatically triggers sell-offs during market downturns, potentially leading to flash crashesMeanwhile, certain arbitrage strategies may effectively capitalize on mispricings in the market, leaving less-savvy retail investors at a disadvantage.

Yet, the other side of the coin reveals that quant trading can foster improved liquidity conditions, enabling retail investors to transact closer to fair market prices, which reduces transaction costsStudies suggest that quant trading participation can enhance A-share liquidity significantlyMoreover, long-term stability is enhanced as arbitrage tactics function to realign prices toward fundamental valuations, shielding retail investors from extreme valuation pitfalls.

Examining the interplay between retail and quant investors unveils tensions about regulatory gray areas where some strategies may skirt boundaries, leading to systemic inequities

Algorithms often generate substantial revenue streams, establishing divides that intensify the gap between institutional traders and retail investors.

Looking to the U.Sexperience, regulatory bodies like the SEC have introduced measures to impose fees on order flow and limit flash orders, but similar regulations are yet to be established within A-sharesAs it stands, quant investment might be accused of aggravating volatility in an already vulnerable systemIn light of these dynamics, only a gradual improvement in regulations coupled with retail investors' migration toward safer, indirect investment avenues such as ETFs and mutual funds can allow quant practices to evolve into stabilizers for the Chinese capital market.

As we return to the relationship between DeepSeek and quantitative firms, it is important to note that this innovative AI development has been bolstered by the expertise from leading quant firms while simultaneously evolving into a standalone entity